Investors have narrowly focused on a single growth theme in US markets: artificial intelligence (AI). In reality, there are a breadth of structural growth themes when investing in North American equities.
For example, demographic shifts and innovation support the healthcare sector, while supply chain changes support a range of industrial companies. Decarbonisation is an important source of growth. There are also clear opportunities in AI beyond the narrow range of infrastructure companies that have led the pack to date.
AI technology companies have been an obvious choice at a time when investors were nervous about the outcome for the US economy. But with a soft landing for the US economy increasingly likely, there is evidence that investors are starting to broaden their focus and look to other, fresher growth themes in the US market.
Emerging opportunities in US healthcare
The US healthcare sector has been supported by long-term demographic trends. Ageing populations around the world have created additional demand for medicines, while rising costs facilitates a need for increased efficiency within the healthcare ecosystem.
The number of Americans ages 65 and older is projected to increase from 58 million in 2022 to 82 million by 2050 and for many European countries, populations are ageing even faster.
There is also significant innovation in the healthcare sector. Breakthrough drugs on obesity, cancer and gene therapy could be a game-changer for a number of pharmaceutical giants.
In 2023, GLP1 drugs, designed to tackle obesity and diabetes, proved to be blockbusters, and the growth prospects for some of those new products remain very strong.
Supply chain restructuring can be beneficial to investors
Supply chain disruption during the pandemic, combined with mounting geopolitical tensions, has led many companies to review and re-engineer their supply chains.
A recent survey by McKinsey found almost two-thirds (64%) of respondents are currently regionalising their supply chains, up from 44% last year. It is a phenomenon we see across the companies in which we invest.
This ‘near-shoring’ takes different forms. Some will be bringing manufacturing back to the US, while others will look for skilled manufacturing options in friendly neighbouring countries such as Mexico.
Either way, it is bringing new opportunities for US businesses. Our preferred exposures are through technology hardware, storage and peripherals and communications equipment companies, where we find beneficiaries of this trend.
The energy transition still relies on natural resources
Our focus on sustainability places a high hurdle for energy companies to be included in the portfolio, but traditional oil and gas operators are critical in the energy transition towards less carbon-intensive sources.
At the same time, energy demand continues to rise: AI is energy-intensive and requires the build-out of new data centres to support it.
As a result, we hold a number of attractively priced energy operators with good resource assets that have the opportunity to improve upon environmental issues or demonstrate clear leadership in sustainability. This may be through exposure to renewables or commitments to carbon-neutral outcomes.
Other themes are also tangential to AI. To date, a lot of the focus has been on the infrastructure of AI, rather than the usage of it. We believe companies with large, proprietary data sets will be in a good position to harness AI and deploy it in their business. This may deliver significant productivity advantages.
Investors do not need to focus narrowly on artificial intelligence to find sources of growth in the US market. In reality, there are a range of structural growth themes, which have been less in the spotlight and where pricing is better as a result.
David Zhao is co-manager of the BlackRock Sustainable American Investment Trust. The views expressed above should not be taken as investment advice.